Tuesday, April 22, 2014

A California appellate court recently held that California's Unfair Competition Law does not empower a trial court to disregard previously secured judgments or grant affirmative relief from them on a classwide basis, thus affirming a trial court's dismissal with prejudice against all class members against whom the defendant lender had previously secured judgments in separate collection actions.

This action arose from a defective notice to cure and reinstate that was sent to a consumer by a car dealership's assignee. The notice purporting to state the conditions on which the consumer could cure her default and reinstate the contract overstated the amount due by some $2,700. The consumer failed to cure, the car was sold and the contract assignee sued the consumer for the deficiency. The consumer counterclaimed on the grounds that, by proceeding to collect deficiencies despite the service of a defective redemption notice, the assignee had engaged in an unlawful business practice in violation of the California Rees-Levering Motor Vehicle Sales and Finance Act (CA Civ. Code, §§ 2981–2984.4 ). The consumer's motion to certify her counterclaim as a class action was granted and was coordinated with a similar class action matter pending against the assignee.

The class claims in both actions included class members against whom the assignee already obtained judgments and the counterclaims sought, among other things, to overturn or bar the assignee from enforcing deficiency judgments it had previously obtained against these judgment debtors. The trial court granted the assignee's motion to strike any such language that sought to set aside previously obtained judgments from the counterclaims. The trial court then approved a class action settlement that excluded judgment debtors from any relief and dismissed their claims with prejudice. This appeal followed.

In affirming the trial court's decision to strike all allegations specifically seeking relief by the judgment debtors, the court first noted the class setting in this matter "greatly complicates the required legal analysis" for res judicata and collateral estoppel claims. Ordinarily, under California law, a defense of res judicata or collateral estoppel (claim or issue preclusion) must be affirmatively raised, and the conditions for its operation demonstrated, by the party asserting it (here, the assignee that served the defective notices). Here, the court noted that the assignee "simply asserted that all of the judgment debtor class members' claims were barred by res judicata and collateral estoppel, without troubling to establish or even acknowledge the conditions for operation of those doctrines."

Moreover, the court acknowledged that "individual members might be able to show that the conditions for preclusion were lacking." Nevertheless, the court noted that no such attempt was made by individual members in the case below, and held that "the pleading raised a strong suggestion, at least, that critical issues were vulnerable to an assertion of issue preclusion." Accordingly, the court turned to whether the counterclaims pled, or could plead, some basis on which to avoid the usual effect of the earlier judgments.

Ultimately, the court disagreed with the consumer's "theory that the UCL rendered the judgments essentially irrelevant," without a factual showing of grounds to avoid the judgments against them. Although the UCL empowers trial courts to "make such orders or judgments . . . as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition . . . or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition," the court disagreed with the consumer's assertion that this language gives a court the power to make any orders needed to restore sums to cross-complainants despite the judgments in the assignee's favor.

Notably, the court pointed out that "[t]he law governing the nature and effect of judgments is a fundamental part of the 'culture' governing civil liability" and "we find even less cause to suppose that the Legislature intended to free UCL litigants of the constraints ordinarily imposed on civil plaintiffs by the law of judgments."

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